AMC Stock – LIC MF woos India’s wealthy with new equity PMS
LIC Mutual Fund, the asset management arm of Life Insurance Corporation of India (LIC), has launched an equity portfolio management service (PMS), targeting high net-worth individuals (HNIs) in India.
The asset manager has hired Azeem Ahmad, a financial markets veteran from ICICI Securities, as its principal officer. The PMS division of LIC AMC already manages around ₹1,600 crore of assets.
The bulk of this money comes from institutions such as the National Skill Development Fund (NSDF) and the Insurance Institute of India, and is earmarked for debt rather than equity.
According to Ahmad, the new PMS—called Factor PMS—will be built around rules-based filters tracking a model evolved by global index provider MSCI.
The filtered universe of stocks will then be analysed by the fund manager and his team, bringing in an element of active management.
The fund, which will invest in large- and mid-cap stocks with a target portfolio of 18-25 shares, will have a management fee of 1.5% (under direct plan) and no performance fee.
Despite Ahmad’s experience, a legacy of underperformance is likely to worry potential investors.
A small existing PMS managed by LIC AMC, called Value Equity, severely underperformed its benchmark and peers to deliver just 0.67% returns per annum from 1 September 2017 to 31 August 2020, the latest reported data in the AMC’s disclosure to Sebi showed.
The timing of the launch is also tricky, with market valuations stretched and aggressive earnings expectations built in.
According to Ahmad, who joined LIC AMC as head-PMS in September 2020, the focus will be on managing volatility by targeting risk-adjusted returns. The PMS will do this by investing in low beta stocks, he added.
Despite being owned by the country’s largest insurer, the PMS has regulations in place that prevents it from accepting funds from the vast cash pile LIC manages.
Other large institutions are also barred by internal rules from investing in equity PMS products, although debt investment is allowed. LIC PMS has signed up Jawaharlal Nehru Port Trust (JNPT) for a commitment of an undisclosed sum, but this will once again be on the debt side.
Ahmad believes that a gradual streamlining of regulations for PMS products will make institutions more confident of investing in equity through this route, as is the case with endowment funds abroad.